Bear Stearns Settlement Gets U.S. Judge's Approval

JPMorgan Chase & Co.’s (JPM) Bear Stearns unit’s settlement of a consolidated lawsuit by investors who lost money from 2006 to 2008 was approved by a federal judge in New York.

Bear Stearns in June agreed to the $275 million cash settlement, which called for the money, minus legal fees, to go to shareholders who claimed the company issued “materially false and misleading statements” about financial results. Its auditor, Deloitte & Touche, agreed to pay $19.9 million.

U.S. District Judge Robert Sweet in Manhattan gave preliminary approval to the settlements on June 13 and made his approval final in an order posted today in court records.

“Since the proposed settlement is both procedurally and substantively fair, and because the settlement of class action litigation is generally favored by the courts, the proposed settlement is hereby approved,” Sweet said in the order.

Shareholders filed a series of lawsuits against Bear Stearns beginning in 2008, claiming the company’s statements artificially inflated its share price, which reached $159.36 in April 2007, and then fell to $106.55 on Aug. 3, 2007, after news about “Bear Stearns’ risky hedge funds” and negative rating- agency outlooks. The suit was filed on behalf of investors who bought Bear Stearns stock and other equity securities and options from Dec. 14, 2006, to March 14, 2008.

Prosecutors’ Inquiry

Bear Stearns, a New York-based investment bank, disclosed in January 2008 that U.S. prosecutors were inquiring into the collapse of the hedge funds. The stock fell to $78.87, according to court filings. Other announcements in early 2008 led to further declines. In March JPMorgan Chase announced it was buying Bear Stearns for $2 a share.

The lead plaintiff in the case is the State of Michigan Retirement Systems. Sweet in January 2011 denied a Bear Stearns motion to dismiss the case, and the two sides then engaged in “extensive discovery” that resulted in the production of about 9 million documents by defendants and other parties and almost 180,000 pages by the plaintiffs, according to Sweet’s order.

Settlement discussions that stalled in November 2009 were revived with the assistance of a mediator in May, and the two sides reached the proposed agreement in June, according to Sweet’s order.

The case is In re The Bear Stearns Cos. Securities, Derivative and ERISA Litigation, 08-mdl-1963 and 08-cv-2793, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.ne

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